Economy Taxes

The Fed Chairman is Baffled by Flat Wages, But Are We?

JM Ashby
Written by JM Ashby

Although Republicans promised their massive corporate tax cuts would lead to higher wages, wages have actually declined according to official numbers from the Bureau of Labor Statistics.

Federal Reserve Chairman Jerome Powell was asked about wage stagnation yesterday afternoon when he called it a "puzzle."

From the Associated Press:

He called it a “puzzle.” And then, as if measuring his words, he said he wasn’t prepared to call it a “mystery.” [...]

Powell acknowledged that he couldn’t say for sure why wage growth remains generally tepid. He said he “certainly would have expected pay raises to react more” to falling unemployment.

Echoing what other economists, including his predecessors and colleagues at the Fed, have suggested, Powell offered up one likely factor: the economy’s relatively low productivity growth. Put simply, American workers aren’t generating enough additional value for each hour on the job.

This week's report from the Bureau of Labor Statistics (BLS) shows that weekly earnings have increased while hourly earnings have decreased, meaning American workers are working longer hours for less money.

If working longer hours for less money isn't "generating enough additional value," as Powell says, what does that say?

It might say that corporations are not increasing wages because they simply don't have to. It might say that the value of a company is increasingly separated from the productivity of its workforce. Corporate America just saw a massive increase in value thanks to the Republican party's tax cuts with virtually no new investment in business or products. Their balance sheets and fiscal projections are soaring through almost no effort of their own.

I don't like starting the day on a somber note, but I can't help but consider what this could all mean when the next recession arrives; when Corporate America isn't doing as well as it is now. If they aren't raising wages when things are good, they certainly aren't going to raise wages when things are bad, right? What will happen when corporations decide the ultimate cost-cutting measure is to stop hiring human workers?

It may have been forgotten at this point so I feel like it's necessary to point out that major corporations never actually promised to raise wages or hire more workers before Trump and the GOP passed their tax cuts.

Most corporations and executives made it quite clear that they would use their windfall to boost the value of their companies and their own stock through buybacks. Others said they would invest the money in automation to replace their human workforce. And one could hardly forget the shit-eating grin on Gary Cohn's face when a room full of executives told him they would not be investing in new business after receiving their tax cuts.

  • ninjaf

    Workers could strike, if Republicans hadn’t spent that last 35 years union busting and taking away their protections and right to collectively bargain, all with the promise of “trickle down” lifting all boats.

  • Aynwrong

    As I said yesterday, anyone who remembers the Bush administration…

    This was literally the most predictable outcomeoutcome because we have lived through this before. Every Republican looking at the results of the giant “redistribution of the wealth” (remember that little gem?) upward and giving us their best ¯_(ツ)_/¯ is simply a liar and damn every reporter who passes up an opportunity to call them out.

  • muselet

    This isn’t a mystery or a puzzle.

    The Federal Reserve is supposed to balance two factors in the economy: keeping the inflation rate low and keeping the employment rate high.

    Kevin Drum has pointed out more than once that the Fed has pretty much given up on maximizing employment, partly because nobody really knows how to do that, and partly because the Fed governors have vivid memories of the high-inflation era of the 1970s; they’re determined never to let inflation get out of control again.

    As I said yesterday, the Fed’s declared target maximum inflation rate is 4%, but it moves to slow the economy when inflation hits 2%. Conventional economics says rising wages are a key contributor to inflation, so wages must never be allowed to rise.

    Jerome Powell is the little kid standing next to the broken cookie jar on the floor, insisting he has no idea how it got there.